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Commentary

WSJ: The Myth Of Indian Realty

Harsh Joshi at The Wall Street Journal:

Low interest rates, a rapidly recovering economy, and India’s never-ending demand for housing: it all adds up to a convincing case to invest in the Indian real-estate sector.

But here’s an eye opener: prices haven’t substantially recovered after a correction which ended six months ago. In fact, except in pockets of demand like Mumbai and to a lesser extent New Delhi, demand for residential properties remains weak.

Even in the big cities, the pace has slowed after a brief six-month sprint, amid a flush supply of homes and prices that remain out of reach of many buyers.

Research firm Liases Foras notes that new residential-unit sales in Mumbai peaked in the June-end quarter, at about 20,000 units, with turnover down to 11,000 units by the fourth quarter of 2009.

"At current price levels, it’s tough to sustain the momentum, leave alone increasing it," says Pankaj Kapoor, the firm’s managing director. It’s no surprise, then, that developers are wary of trying to raise prices. Conditions will become only more challenging if, as expected, India’s period of low interest rates comes to an end.

There are signs of lower cost housing – the Gurgaon/Delhi Radio Networks are flush with ads like “buy a house for 23 lakhs in Ghaziabad” etc. (They might forget to tell you cement is extra, the location is closer to China than Delhi and so on) And there are teaser rates from all sorts of banks – I heard of a recent offer of 5% for the first year! (Another post on that)

The figures that the real estate companies provide this quarter and the next should give a better picture. The WSJ article may be just an early indicator that it’s not all roses out there.

Like the author notes later in the article, Real Estate stocks have jumped back; and many more IPOs are in the offing. Will the market turn around just as they list? Or will that IPO gong be their death knell?

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